Making Money Off Inflation
In this week’s edition of the Market & Portfolio Review, we discuss how to identify and invest in companies that have the power to thrive in an inflationary environment. After 35 years of disinflation and deflation, the global economy appears to be entering a sustained period of reflation, accompanied by rising prices, capital expenditures, and higher interest rates. As prices rise, cash becomes trash, so as opposed to fearing inflation, we want to identify and invest in companies that will benefit from rising spending as consumers and companies seek more productive uses for their cash.
In a reflationary environment, cheap value stocks that benefit from rising economic activity tend to outperform expensive growth stocks. Within value, commodity and financial stocks are positioned to benefit from a broad global reopening while also having the pricing power to thrive in an inflationary environment.
Key Takeaways
- The shift to value may last years, not months
- Energy and financials appear to be leading the shift to value
- A weakening Japanese Yen may accelerate this shift
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